Paul Manafort and the Case of the $250,000 Antique-Rug-Store Bill

Money launderers never think they’ll get caught. The Mueller investigation could change that.

Photograph by Victor J. Blue / Bloomberg via Getty

In the indictment against Paul Manafort, made public on Monday, with the first wave of revelations in the Mueller investigation,
there’s a telling pattern that appears on pages 7 through 14 in a
listing of dozens of payments that overseas companies, allegedly owned
or controlled by Manafort and his associate Richard Gates, made to
several businesses in the United States. For years, starting in 2008,
Manafort and/or Gates made routine payments—often every other week,
sometimes every other month—to the same small group of companies. There
is an unnamed home-improvement business in the Hamptons, a
home-automation company in Florida, an antique-rug store in Alexandria,
Virginia, and others. The indictment holds that these payments were for
personal purchases, but that doesn’t appear to make much sense. It’s
hard to imagine a person who spends twelve million dollars over six
years but only shops at a handful of stores, and nearly always happens
to have a bill that ends in multiple zeroes: $107,000, then $20,000, then $250,000. At an unnamed men’s-clothing store in New York, Manafort spent $32,000, $15,000, $24,000, and other multiples of a thousand.
For money-laundering experts, this fact alone would be cause for
suspicion. It is extremely rare for even a single purchase to end in
three zeroes. An even more glaring sign is that the payments all came
from businesses in Cyprus controlled by Manafort and/or Gates. And then,
in February and March of 2013, the funds stopped flowing from Cyprus, and
began to come from accounts in the Grenadines.

That timing is significant. The Cyprus payments stopped just as the
global accounting firm Deloitte published a report on behalf of the forty-seven-nation Council of Europe, detailing
stunning, naked criminality in the banking system of Cyprus and
heralding a crackdown on money laundering in that country. The Republic
of Cyprus is a small, middle-income country of a little more than a
million citizens, yet its banking system has hundreds of billions of
dollars in assets—more than nine times its gross domestic product. (The
U.S. banking system is roughly the same as its G.D.P.) Cyprus was,
economically speaking, more a group of global banks with a tiny country
appended to them than a country that happened to have some banks. Many
of those assets are owned by shell companies with, according to the
report, “an average of three layers” of ownership, meaning that the
banks were an anonymous shell company that was owned by another
anonymous shell company that was owned by a third anonymous shell
company. The actual identity of the true owner of an account was known
in only nine per cent of the hundreds of hidden accounts that Deloitte
studied. At some banks, the high-risk clients—those who trigger
multiple signs of money laundering—made up more than half of the
customer base.

None of that would have shocked anybody who was paying attention. Cyprus
has long had a reputation for money laundering. Yet official groups had
been giving Cyprus a pass for years; the Council of Europe itself had
given the country high grades for its anti-money-laundering efforts just
two years before. The report came out just as the European Union and
others were spending billions of dollars to bail out Cyprus’s teetering
banking system. That European institutions were, effectively, bailing
out Russian oligarchs and gangsters became a political and media
obsession. The situation called for that rarest of events: a government body
saying the clear truth about something everybody already knew.

The experience of Manafort this week and Cyprus in 2013 have much in
common. Both cases involved activity that bears several of the hallmarks
of money laundering. It was happening fairly openly, and many could have
spotted it: the banks that processed the payments into and out of
Cyprus, the banks in Cyprus themselves, government regulators in each of
the countries through which the money flowed, the various businesses—and
their accountants—that received the funds. They were only exposed
because of overwhelming external political pressures. Government sources
generally estimate global money laundering to account for around one
trillion to two trillion dollars each year. That is serious money that
concentrates in two types of places: offshore money centers such as Cyprus that profit from processing such payments and, crucially, a
handful of global cities that have become central nodes in the global
money-laundering economy, most notably New York and London. A former
high-ranking official in New York State government told me that a
serious attempt to reduce money laundering in New York City would be
impossible because it would so severely damage the local economy. The
Treasury Department, under President Obama, launched an effort to
curtail money laundering through real-estate purchases in New York,
Miami, Los Angeles, and a few other American cities by insisting that
purchasers reveal their true identity when paying all cash for
high-value properties; this measure was strengthened early in the Trump Administration. (It’s still easy enough to evade the rules,
however: one can simply buy several lower-value properties in a single
building and then remove the walls between them, to create one
mega-unit.)

Manafort’s scheme, if proven, was brazen. It is remarkable that a
sophisticated operator would feel so comfortable funnelling millions of
dollars through Cyprus-based shell companies and bank accounts into the
United States. He was probably right to feel invincible. Absent the
Mueller investigation into possible collusion between the Russian
government and the Trump Presidential campaign, Manafort would likely never have been caught. It seems reasonable to assume that many others are doing much the same and, similarly, have little fear of prosecution.

However, right now there also must be several people who, like Manafort,
are part of the Trump world and are thus subject to unusually intense
scrutiny, and who have operated in one or more of the parts of the world
associated with money laundering. A brief glance at Trump’s business and
political partners reveals many who, one might assume, are being given
close attention. No doubt Mueller’s team has looked into the financial
pasts of many in the Trump orbit. The Manafort indictment makes clear
that Mueller will work toward their arrests even if their crimes have
little to do with Trump himself, presumably creating an incentive to
collaborate with Mueller’s investigation.

However the Mueller investigation ends, the world cannot continue to
accept money laundering as inevitable, and only prosecuted when it is a
useful tool toward some other end. Money laundering is terrible in and
of itself. It transfers wealth away from tax-funded democracies and
toward kleptocracies, rewarding crime and punishing legitimate
businesses. Hopefully, one of the lessons of the Mueller investigation
will be that global criminals should feel quite a bit more afraid about
the illicit transfer of their money around the globe.